Decrease / (increase) in amounts due from
China United Telecommunications Corporation

16,711

(312,729

)

Increase in payables and accrued liabilities

842,781

50,154

Increase in advances from customers

747,051

297,128

(Decrease) / increase in deferred revenue

(204,990

)

107,020

Increase in amounts due to domestic
carriers

41,597

262,965

Increase in amounts due to related parties

43,904

137,144

Net cash inflow from operations

7,239,087

6,146,121

(b)Supplemental information:

Payables
to equipment suppliers for construction-in-progress during the three months
ended 31 March 2005 decreased by approximately RMB449 million (for the
three months ended 31 March 2004: approximately RMB191 million).

Notes
(amounts expressed in RMB unless otherwise stated)

1.Basis of presentation

China
Unicom Limited (the Company) was incorporated in the Hong Kong Special Administrative
Region (Hong Kong), the Peoples Republic of China (the PRC) on 8
February 2000. The principal activities of the Company are investment
holding and the Companys subsidiaries are engaged in the provision of GSM and
CDMA cellular, data, Internet and long distance services in the PRC. The GSM
and CDMA business hereinafter collectively refer to as the Cellular Business.
The Company and its subsidiaries are hereinafter referred to as the Group.

The Hong Kong Institute of
Certified Public Accountants has issued a number of new and revised Hong Kong
Financial Reporting Standards (HKFRSs) and Hong Kong Accounting Standards
(HKASs), herein collectively referred to as the new HKFRSs, which are
effective for accounting periods beginning on or after 1 January 2005. The
Group adopted the new HKFRSs on 1 January 2005 and the above financial
data included the impact upon adoption of these new HKFRSs. The adoption of the
new HKFRSs resulted in the changes of accounting policies in the following
major areas which affect the results of operations and financial position of
the Group:

(i)Share-based payment

Under
HKFRS 2 Share-based payment, the Group is required to determine the fair
value of all share-based payments to employees as remuneration and recognise an
expense in the income statement. Under the specific transitional provisions of
HKFRS 2, this treatment applies to equity-settled share-based payment
transactions where shares, share options or other equity instruments were
granted after 7 November 2002 and had not yet vested on 1
January 2005 and to liabilities arising from share-based payment transactions
existing on 1 January 2005. This treatment resulted in an increase in
personnel expenses as such items have not been recognised as expenses
previously by the Group. The Group recognised stock-based employee compensation
costs based on the estimated fair value of share options at the grant date by
using the Black-Scholes Option pricing model, after taking into consideration
of risk-free rate, expected life of option, expected dividend yield and
volatility etc, which are expensed over the relevant vesting periods. For the
three months ended 31 March 2005, adoption of HKFRS 2 resulted in a
decrease in net profit by approximately RMB38 million (for the three months
ended 31 March 2004: approximately RMB9 million). This treatment also
resulted in an employee share-based compensation reserve as of 31
December 2004 of approximately RMB111 million with a corresponding
decrease in the retained earnings as of 31 December 2004 of the same
amount.

(ii)Goodwill / Negative goodwill

Under
HKFRS 3 Business Combinations, goodwill is no longer amortised but instead is
subject impairment test on an annual basis or when there are indications of
impairment. This policy is applied prospectively from 1 January 2005. This
resulted in a change of the Groups accounting policy applied previously under
which goodwill was amortised over the beneficial period of 20 years and
assessed for an indication of impairment at each balance sheet date. In
accordance with the provision of HKFRS 3, the Group ceased amortisation of
goodwill from 1 January 2005, and accumulated amortisation as at 31
December 2004 was eliminated against the cost of goodwill. As of 31
December 2004, the carrying amount of goodwill, net of accumulated
amortisation, amounted to approximately RMB3,144 million and the amortisaton
for the three months ended 31 March 2004 amounted to approximately RMB43
million.

Upon
the adoption of HKFRS 3, negative goodwill previously recognised with carrying
amount of approximately RMB7 million as of 31 December 2004, which
represented the excess of fair values of the net identifiable assets and
liabilities acquired over the purchase consideration at the date of
acquisition, has been derecognised at 1 January 2005, with a corresponding
adjustment to the opening balance of retained earnings of the Group.

As
required under HKFRS 3, upon the adoption of HKFRS 3 from 1 January 2005,
the Group also applied HKAS 36 Impairment of assets and HKAS 38 Intangible
assets prospectively from the same date. The adoption of these accounting
policies has no significant impact on the Groups operating results for the
three months ended 31 March 2005.

(iii)Land use right in the PRC

Under
HKAS 17 Leases, land use right in the PRC is no longer accounted for as
property, plant and equipment. Instead, it is reclassified as other assets -
long-term prepayment of lease, which is stated at cost and recognised as an
expense on a straight-line basis over the lease term. This policy was adopted
by the Group from 1 January 2005 and applied retrospectively. As of 31
December 2004 and 31 March 2005, the carrying amount of land use
right in the PRC amounted to approximately RMB412 million and RMB400 million
respectively. This change has no material impact on the operating results of
the Group.

5

(iv)Revenue

Upon
adoption of the new HKFRSs, the Group changed its accounting policy for upfront
non-refundable revenue, such as connection fee, which had previously been
recognised upon completion of activation services. Effective from 1
January 2005, upfront non-refundable revenue and the related direct
incremental cost incurred are deferred and recognised over the expected
customer service periods. The expected customer service period for the Cellular
Business is estimated based on the expected stabilised churn rates of
subscribers. Management judges that this change of accounting policy provides
reliable and more relevant information because it better reflects the economic
effects of the transactions and is consistent with the accounting policy
adopted for the Groups financial information presented under generally
accepted accounting principle in the United States of America.

This
change of accounting policy has been accounted for retrospectively and the
relevant comparatives have been restated. For the three months ended 31
March 2005, this treatment resulted in an increase of net profit by
approximately RMB45 million (for the three months ended 31 March 2004:
increase of net profit by approximately RMB49 million), and a decrease of the
retained earnings as of 31 December 2004 by approximately RMB368 million.

The
adoption of the new HKFRSs as discussed above has resulted in the changes of
the opening retained earnings of the Group as summarised below:

Retained
profits

RMB million

Balance
at 31 December 2004, as previously reported

16,783

Effects
of changes of accounting policies upon adoption of the new HKFRSs:

Basic
earnings per share for the three months ended 31 March 2005 and 2004 were
computed by dividing the profit attributable to shareholders of approximately
RMB1,062,915,000 and RMB1,437,710,000 (as restated) by the weighted average
number of 12,566,069,461 shares and 12,558,240,685 shares during the periods
respectively.

Diluted
earnings per share for the three months ended 31 March 2005 and 2004 were
computed by dividing the profit attributable to shareholders by the weighted
average number of ordinary shares in issue during the periods, after adjusting
for the effects of the dilutive potential ordinary shares. All potential
dilutive ordinary shares arose from share options granted under (i) the
amended Pre-Global Offering Share Option Scheme; and (ii) the amended
Share Option Scheme. For the three months ended 31 March 2005 and 2004,
all potential dilutive shares, which if converted to ordinary shares would
decrease profit attributable to the shareholders per share. The anti-dilutive
shares arising from the share options of approximately 31,944,000 shares (2004:
approximately 31,944,000 shares) were not included in the calculation of
diluted earnings per share.

3.Related party transactions

For
the three months ended 31 March 2005, the Group incurred recurring related
party transactions with its related parties of which approximately
RMB64,006,000 (2004: approximately RMB47,602,000) were included in the
operating revenue and approximately RMB2,578,157,000 (2004: approximately
RMB1,665,969,000) were included in the operating expenses.

6

On 24
March 2005, the Companys subsidiaries, China Unicom Corporation Limited
and Unicom New World Telecommunications Corporation Limited entered into the
new agreements of New Comprehensive Service Agreement, New CDMA Lease, New
Comprehensive Operator Services Agreement and New Guoxin Premises Leasing
Agreement with China United Telecommunications Corporation, Unicom New Horizon
Mobile Corporation Limited and Unicom New Guoxin Telecommunication Corporation
Limited to replace the old agreements. The new agreements would become
effective from 1 January 2005 once approved by the forthcoming
extraordinary shareholders meeting on 12 May 2005. The effects of these
new connected transaction agreements have not yet been reflected in the
unaudited condensed consolidated income statements for the three months ended
31 March 2005 of the Group.

FINANCIAL
RESULTS OUTLINE

In pursuing our determined
operational mission, the Company maintained the steady growth of its various
business segments for the first quarter of 2005.

Operating
revenue

Operating revenue for the
first quarter of 2005 was RMB20.86 billion, among which service revenue was
RMB19.98 billion.

Net additions of subscribers
for GSM Cellular Business were 2.715 million for the first quarter. Service
revenue achieved from this business was RMB12.06 billion. The average minutes
of usage (MOU) per subscriber per month was 186.5 minutes and the average
revenue per subscriber per month (ARPU) was RMB46.9.

Net additions of subscribers
for CDMA Cellular Business were 1.618 million for the first quarter. Service
revenue from this business was RMB6.65 billion. The average MOU per subscriber
per month was 275.5 minutes and the ARPU was RMB77.5.

In the first quarter, the
Companys total minutes of outgoing international and domestic long distance
calls reached 6.15 billion minutes. Internet subscribers were 10.033 million.
Service revenue from Long Distance, Data and Internet Business was RMB1.27
billion.

Operating
expenses

Operating expenses for the
first quarter were RMB19.00 billion. Among the total operating expenses,
depreciation and amortization expenses were RMB5.02 billion, selling and
marketing expenses were RMB4.61 billion and general, administrative and other
expenses were RMB2.72 billion.

Profit
attributable to shareholders

The Companys operating profit
for the first quarter was RMB1.88 billion. Operating profit from GSM Cellular
Business was RMB2.13 billion; Operating loss incurred by CDMA Cellular Business
was RMB0.28 billion. Operating profit from Long Distance, Data and Internet
Business was RMB0.06 billion.

Net profit for the first
quarter of 2005 was RMB1.06 billion. The earnings per share for the first
quarter were RMB0.085.

EBITDA(Note 1) for the first quarter of 2005 was RMB6.87 billion. EBITDA margin
(EBITDA as a percentage of operating revenue) was 33.0%. Adding back the
leasing expenses incurred for CDMA network capacities, EBITDA margin was 42.3%.
GSM Cellular Businesss EBITDA margin was 51.8%. EBITDA margin of Long
Distance, Data and Internet Business was 32.3%.

In the first quarter of 2005,
the Company faced with intense market competition. The Company insisted on
market-orientated approach and strengthened basic management. Transformation of
development model was propelled proactively. Business and revenue grew
steadily. Tariff and ARPU were stabilised. Marketing expenses were also
controlled effectively. The Company will continue to insist on rational,
pragmatic and proactive development strategies. Emphasis will be paid to
efficient development of the GSM and CDMA network. Advantages of being an
integrated operator and in CDMA 1X wireless data service will be focused.
Market competition order will be maintained. Corporate management will be
strengthened in order to propel continued and stable development of the
Company. Better return will thus be created to the shareholders.

Caution
statement

The Board wishes to remind
investors that the financial statements and the financial outlines for the
first quarter ended 31 March 2005 are based on the Groups internal
records and management accounts. The financial statements for the first quarter
ended 31 March 2005 have not been reviewed or audited by the auditors. The
financial statements for the first quarter ended 31 March 2004 are
extracted from the unaudited financial statements already disclosed by the
Group and has been restated, and the financial statements for the year ended 31
December 2004 are extracted from the audited financial statements as
contained in the 2004 Annual Report and has been restated. Investors
are cautioned not to unduly rely on financial data, statistics and comparison
for the first quarter ended 31 March 2005. In the meantime, Investors are
advised to exercise caution in dealing in the shares of the Company.